Table Of ContentHorst Siebert
Economics
of the
Environment
Theory and Policy
Third, Revised and Enlarged Edition
Springer-Verlag
Berlin Heidelberg GmbH
Prof. Dr. Horst Siebert
President
Kiel Institute of World Economics
Diistembrooker Weg 120
0-2300 Kiel1
FRG
ISBN 978-3-662-02844-5
Library of Congress Cataloging-in-Publication Data
Siebert, Horst, 1938-
Economics of the environment: theory and policy 1 Horst Siebert.
--3rd, rev. and en!. ed.
p.cm.
Includes bibliographical references and index.
ISBN 978-3-662-02844-5 ISBN 978-3-662-02842-1 (eBook)
DOI 10.1007/978-3-662-02842-1
1. Environmental policy-Economic aspects. I. Title.
HC79.ESS437 1992
363.7--dc20
92-10362
CIP
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© Springer-Verlag Berlin Heidelberg 1987, 1992
Originally published by Springer-Verlag Berlin Heidelberg New York Tokyo in 1992
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Contents
List of Figures and Tables
Preface
Part I Introduction 1
Chapter 1 The Problem 3
Chapter 2 Using the Environment - An Allocation Problem 9
Externalities 9
Relationship between the Environment and the
Economic System 10
Material Flows between the Environment and the
Economic System 14
Competing Uses 15
Zero Price of Environmental Use 18
Environmental Effects of Government Decisions 20
How Much Environmental Quality? 21
A Taxonomy of the Environmental Problem 21
Appendix 2A: Input-Output Analysis and the
Environment 23
Appendix 2B: Applied General Equilibrium Models 26
Part II Static Allocation Aspect 27
Chapter 3 Production Theory and Transformation Space 29
Production Theory 29
Transformation Space with Environmental Quality 32
Variables Affecting the Transformation Space 35
An Alternative Approach of Production Theory 38
Appendix 3A: Properties of the Transformation Space 40
Appendix 3B: Transformation Space with
Negative-Productivity Effect 44
Chapter 4 Optimal Environmental Use 45
Criteria for Optimality 45
Optimization Problem 46
A Shadow Price for Pollutants 48
Implications for the Shadow-Price System of the
Economy 51
VI Economics of the Environment
Optimum and Competitive Equilibrium 52
Requirements for an Emission-Tax Solution 56
Appendix 4A: Nonlinear Optimization 58
Appendix 4B: Implications of the Allocation Problem 60
Appendix 4C: Implications of the Profit Maximum 62
Chapter 5 Environmental Quality as a Public Good 63
Characteristics of a Public Good 63
Allocation of Public Goods 66
Social-Welfare Function 68
Benefit/Cost Analysis 69
Costs of Environmental Quality 70
Evaluation of Environmental Quality 73
Individual Preferences and the Pareto-Optimal
Provision of Environmental Quality 77
Thesis of Market Failure 80
Lindahl Solution 80
Mechanisms of Social Choice 87
An Example: Ambient Quality Standards 94
Chapter 6 Property-Rights Approach to the Environmental
Problem 99
Property-Rights Approach 99
Property Rights and Environmental Allocation 100
Coase Theorem 101
Coase Theorem and Transaction Costs 103
Can Property Rights Be Specified? 104
Part III Environmental-Policy Instruments 107
Chapter 7 Incidence of an Emission Tax 109
Standard-Price Approach 109
Reaction of Producers 111
Emission Taxes in Monopoly 113
Gen;~ral Equilibrium Approach 114
Allocation in a General Equilibrium Model 115
Pollution Intensities, Factor Intensities, and
Allocation Effects 119
Overshooting of the Emission Tax 122
Appendix 7A: Reaction of the Individual Firm 124
Appendix 7B: General Equilibrium Model 125
Contents VII
ChapterS Policy Instruments 127
Transforming Quality Targets into Individual Behavior 127
Available Policy Instruments 128
Criteria for Evaluating Instruments 128
Moral Suasion 130
Government Financing and Subsidies 130
Regulatory Approach 131
Emission Taxes 134
Pollution Licenses 138
The Bubble Concept 143
Institutional Arrangements for Cost Sharing 146
Combining Standards and an Emission Tax 148
Taxonomy of the Environmental Problem and Policy
Instruments 148
Chapter 9 The Political Economy of Environmental Scarcity 151
The Opportunity Cost Principle 151
The Polluter Pays Principle 152
The Principle of Long-Run Perspective 154
The Principle ofInterdependence 155
Major Environmental Legislation 156
Part IV Environmental Allocation in Space 159
Chapter 10 Environmental Endowment, Competitiveness and Trade 161
Environmental Systems in Space 161
Environmental Endowment 162
National Environmental Policy and Comparative
Advantage 163
Environmental Policy and Trade Flows 166
Location Advantage 167
International Specialization and Environmental Quality 168
The Equalization of Prices for Emissions 169
Environmental Policy and Gains from Trade 170
Environmental Regulation and Protection against Trade 171
Environmental Policy in the Single Market 172
Chapter 11 Transfrontier Pollution and Global Issues 175
Transfrontier Diffusion Function versus International
Public Good 175
Distortions from Transfrontier Pollution 176
VIII Economics of the Environment
The Non-cooperative Solution to Transfrontier
Pollution 176
The Cooperative Solution in Transfrontier Pollution 179
Side Payments 180
The Bargaining Approach to Transfrontier Pollution 181
Policy Instruments for Transfrontier Pollution 182
Global Environmental Media 185
The Non-cooperative Solution to Global Media 185
The Cooperative Solution to Global Media 187
Transferable Discharge Permits 189
An International Order for the Environment 189
Chapter 12 Regional Aspects of Environmental Allocation 191
The Problem 191
Spatial-Allocation Model 194
Regional Implications of a National Environmental
Policy 195
Regional Differentiation of the Emission Tax 196
Location Advantage 197
Diagrammatic Explanations 198
Resource Mobility and Adjustment of Emission Taxes 202
Differences in Environmental Quality 203
Siting Issues and the National Interest 203
Regional versus National Authorities 204
Some Restraints on Regional Authorities 205
Regional Autonomy and Environmental Media 206
Environmental Equity and Specialization of Space 207
Environmental Policy and Regional Planning 208
Appendix 12A: A Regional Allocation Model 210
Part V Environmental Allocation in Time and under
Uncertainty 213
Chapter 13 Long-Term Aspects of Environmental Quality 215
The Problem 215
Dynamic Model 217
Implications 217
Three Strategies for Dynamic Environmental Use 219
Social Discount Rate and Environmental Allocation 223
Further Determining Factors of the Shadow Price
of Emissions 224
Appendix 13A: Control Theory 227
Appendix 13B: A Dynamic Allocation Model 230
Contents IX
Chapter 14 Economic Growth and Environmental Quality 233
Zero Economic Growth 233
Interdependencies among Environmental Quality,
Growth, and Resources 236
Growth and Environmental Degradation 237
The Survival Issue 243
Environmental Quality as a Normative Restriction for
Growth 243
Optimal Growth 245
Sustainable Development 245
Growth with Finite Resources 246
Chapter 15 Risk and Environmental Allocation 249
Environmental Risks 249
Risk and Environmental Quality 251
A Simple Static Model 253
Risk in an Intertemporal Context 255
Preventive Environmental Policy 257
Irreversibilities and Option Values 258
Allocating Environmental Risks? 259
Risk Reduction 259
Allocating the Costs of Risk Reduction 260
The Response of the Polluter under Uncertainty 261
About the Author 263
Bibliography 265
Index 291
List of Figures
and Tables
Figures
2-1 Interaction between the Environment and the Economy 11
2-2 Input-Output System of the Economy and the Environment 14
3-1 Emission and Production Functions 30
3-2 Damage Function 32
3-3 Transformation Space with Environmental Quality 33
3-4 Specific Cases of the Transformation Space 35
3-5 Transformation Space with Negative Externalities 37
3-6 Production Function with Emissions as Input 39
4-1 Determination of the Emission Tax 50
5-1 Aggregation of Willingness to Pay 64
5-2 Optimal Environmental Quality 68
5-3a Abatement Costs in Selected Sectors 71
5-3b Investment Costs for S02 and NOx Reduction 72
5-4 Pareto Optimum of Environmental Allocation 79
5-5 Household Optimum 83
5-6 Lindahl Equilibrium 85
5-7 The Net Benefit Function of the Consumer 89
5-8 The Median Voter 90
6-1 Coase Solution with Transaction Costs 103
7-1 Standard-Price Approach 110
7-2 Structure of General Equilibrium Model 116
7-3 Main Effects of an Emission Tax 120
7-4 Allocation Effects in a Two-Factor Model 121
8-1 Effect of an Instruction to Reduce Emissions 132
8-2 Reactions to an Emission Tax 136
8-3 Tax Bases of an Emission Tax 137
8-4 Combining Standards and an Emission Tax 148
10-1 Trade Effects of Environmental Policy 164
10-2 Comparative Advantage and Environmental Policy 165
11-1 Transfrontier Pollution 177
11-2 Non-cooperative and Cooperative Solution of
Transfrontier Pollution 178
